Download - Inflation & Monetary Policy Ppts03
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Presented by:Abhinandan Mehrotra (04)Amanpreet Kaur (19)Anukriti (28)Ashwani Anand (40)Disha Gupta (52)
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Negative Effects .
Decrease in real value of money .Balance trade is disturbed in casetrading is in between economies .Inflation also causes hoardings of goods .
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Ex cessive growth of money supply causes hyper inflation .
IT is attributed by government with increase in currency incirculation in the country .
Fluctuation in real demand of goods and services .
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Monetary policy is all aboutmanipulation of interest rate to control
the level of inflation .
Its aim is to maintain price stability .
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Monetary policy implies that an interestrate hike of let x % is suppose to bring
down inflation to y%
So the question arises how does
adjusting interest rates affects the outputgap, thereby encouraging pricestability?
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Monetary policy rest on relationshipbetween the rates of interest in an
economy and the total supply of money
Monetary policy uses a variety of tools to
affect economic growth , inflation , etc.
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1 . INCREASE IN BANK RATES:An increase in bank rates leads to anincrease in the interest rate charged bycommercial banks which in turndiscourages borrowing by businessmen
and consumers
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2 . SALE OF GOVERNMENT SECURITIES:
By selling government securities in open market , the
central bank directly reduces the cash reserves of thecommercial banks .
The fall in the cash reserves compelsthe banks to reduce their leading activities .
This will reduce the money supply andhence the inflationary pressures in the economy .
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3 . HIGHER RESERVE RATIO:An increase in the minimum reserve ratiomeans that the member banks arerequired to keep larger reserves with thecentral bank .
This reduces the depositsof banks andthus limits their power to create credit .
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4 . SELECTIVE CREDIT CONTROL:The purpose of selective credit controlmeasures is to influence specific type ofcredit while leaving other type of creditunaffected .
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Creeping InflationGalloping InflationHyperinflationStagflationDeflation
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Q uantitative measures Q ualitative measures
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Q uantitative measures includes: Bank rate Open market operation . C ash reserve ratio .
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Q ualitative measures includes: Margin instrument . Moral suasion . Direct action . C redit rationing .
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W ith the help of this project we canconclude that the increase in general level
of price of goods & services is known asInflation .It has negative as well as positive impactson the people & in the economy also .
Inflation is caused due to fluctuation in realdemand of goods & services also e xcessivegrowth of money supply caused byHyperinflation .
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It can be controlled with help of monetarypolicy upto some e xtent by adopting
certain qualitative & quantitative measuressuch as bank rate,cash reserve ratio, creditrationing etc .
Reserve repo rate:Increase the repo rate under the LiquidityAdjustment Facility (LA F) by 25 basis pointsfrom 5 .0 per cent to 5 .25 per cent withimmediate effect .
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